Finance executives are increasingly optimistic about the economy and say they are likely to increase spending, according to a new survey
. However, this trend is not likely to translate into corporates immediately investing their cash reserves.
For its fourth Annual CFO Survey, TD Bank polled 300 senior finance executives, including CFOs, comptrollers, treasurers and directors of finance across the East Coast. Three-quarters of respondents companies with annual sales between $50 million and $250 million (middle market), while the remaining quarter are with companies with annual sales greater than $250 million (corporate).
The April 2014 AFP Corporate Cash Indicators™
(AFP CCI), underwritten by State Street Global Advisors, yielded similar results. The latest indicators showed that U.S. businesses appeared to be growing more confident about the economy as the pace of cash accumulation slowed significantly. Meanwhile, short-term investment aggressiveness increased in 1Q2014 to a reading of +10, up six points from the prior year and an all-time high for the metric.
Fully 60 percent of respondents to the TD Bank survey said they are optimistic about U.S. economic growth in 2014, up from 46 percent last year. About half said they expect to increase capital expenditures due to strong revenue growth. Top areas for spending include technology (64 percent), existing facilities (42 percent) and hiring (40 percent). TD bank noted that the percentage of respondents willing to hire saw a 15 percent jump over 2013.
“The increased appetite for capital investments confirms our view that businesses are finding ways to thrive in the ‘new normal’ economy,” said Greg Braca, executive vice president and head of corporate and specialty banking at TD Bank. “Increased spending at the corporate level bodes well for the long-term acceleration of growth and M&A, with companies recognizing that now is a great time to make a move before interest rates creep higher.”
However, not all the survey respondents expect to release their cash reserves immediately. More than two thirds of finance executives said they have cash holdings stockpiled, and less than a quarter of them plan to put those funds to use this year. Most of them plan on holding onto that cash into next year.
Eighty-one percent of respondents expect their company’s revenues to increase in 2014, which is a 10 percent jump from last year. The majority only expect small increase in the 1-9 percent range. However, middle market finance executives were more optimistic. Fully 17 percent project revenue increases of 10-14 percent, compared with 10 percent of corporate CFOs, while 16 percent project increases of 15 percent or more, compared to 14 percent of corporates.
Despite the optimism over the U.S. economy, respondents still have a number of concerns, including regulation, the competitive environment, political gridlock over the U.S. budget deficit and tax policy, global volatility and the cost of doing business.
“While there’s still unease about the business environment, CFOs are much less concerned than they were even just a few years ago,” said Fred Graziano, executive vice president and head of regional commercial banking for TD Bank. “Only the competitive environment was viewed with increased concern over 2013, but that’s a good thing. Competition exists because the overall business climate has improved, which the Fed has confirmed by seeking to raise interest rates sooner than initially expected.”